Carbon Tax – Should It Be Seriously Considered?

The U.S. consumes a lot of fossil fuels from the burning of electricity inefficiently to driving inefficient cars and trucks on the highway. Politicians, the media, and others in society talk about the need for the U.S. to become energy efficient due to environmental reasons such as the threat posed by climate change if no action is taken. Yet, many policymakers are devoid of clear solutions to address the U.S. reliance on fossil fuels for much of our energy needs. Usually, the solutions involve encouraging things like renewables and energy efficiency. Those two solutions alone seem to fall well short of discouraging the use of fossil fuels. As such, if fossil fuels are the real problem, why not institute a carbon tax to discourage their use?

The argument against a carbon tax may be “why are we going to tax people especially in a poor economy?” The answer is that with a carbon tax “revenues can be returned through dividends or can be used to fund progressive tax-shifting to reduce regressive payroll or sales taxes.” In particular, the revenues generated from the carbon tax can “help consumers use less energy” and additionally they can also help poor households buy and make the necessary investments in energy production from non-carbon sources. Thus, while it is true that the carbon tax is by definition a tax, it also helps to reduce other regressive taxes we have in the U.S. like the sales tax that would disproportionately impact lower income Americans. As such, if the U.S. is serious about reducing its carbon footprint, then it should start by enacting a carbon tax.

A carbon tax, furthermore, brings other tremendous benefits such as taxing carbon enables the ability of consumers to predict “with a reasonable degree of confidence well ahead of time” what energy prices will end up being. As such, consumers can take note and will be able to plan ahead and make the investment in renewable energy sources instead of having to wait at the last minute and scramble. Since carbon-emitting sources are taxed, consumers will look for the cheapest alternative non-carbon emitting. In other words, consumers will be forced to find an alternative to their consumption of fossil fuels.

Consequently, politicians should institute a carbon tax because it ultimately will change consumers behavior to consume non-carbon emitting energy sources. Furthermore, carbon tax revenues can help reduce the onerous burden of the sales tax especially on low income Americans. As such, the carbon tax is a win-win in terms of forcing people to change their consumption habits and in terms of reducing the burden of other regressive taxes in the U.S.

I agree completely. The cap and trade scheme now languishing in Congress is extremely complicated and creates a whole new set of financial derivatives for our greedy financial system to turn into another bubble. If carbon is taxed at the few points of entry into the system, the overhead of maintaining it is way less than all of the trading of carbon credits at the many points of use.

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